Amazon recently announced that it is reducing its selection of private label products. Why? This decision appears to be a response to regulatory issues.
Regulatory issues have brought Amazon to the forefront of the news, again and again, with the question being whether Amazon’s e-commerce platform competes fairly with the nearly two million small and medium size businesses that sell on Amazon.
When a customer searches Amazon for a product, does the search treat the retailers fairly, or does it unfairly benefit Amazon’s private label selection? Will the shopper see more of Amazon’s products on the first page than they should, based on fair placement?
Amazon Facing Regulatory Scrutiny in the US and EU
There is legislation in the US congress that would bar Amazon and other tech companies from giving preferential treatment to their own private label products on their platforms. The American Innovation and Choice Online Act can be viewed HERE.
At gobankingrates.com we find the following: “In March, bipartisan members of the House Judiciary Committee sent a letter to Attorney General Merrick Garland to alert the Department of Justice to potentially criminal conduct by Amazon and its senior executives. ‘In testimony before the Committee, a senior Amazon official represented that Amazon does not use the data it collects on its third-party sellers to compete with them and does not list its products before third-party products in customer search results. Credible investigative reporting demonstrated the opposite,’ a March 9 House Judiciary Committee press release read.”
Amazon is facing similar scrutiny by the European Union as the company seeks to resolve EU antitrust investigations. The EU accusation against Amazon is that the company has created an unfair advantage in search results for its private label products. According to an article at PBS.org Amazon is seeking to resolve two antitrust investigations by promising to treat third-party merchants on its website fairly.
“The commission launched an investigation four years ago over concerns Amazon breached EU competition rules by using data from merchants selling products on its platform to gain an unfair advantage over them. It also opened a separate investigation into whether Amazon favors its own retail business and merchants that use its logistics and delivery system over other sellers. The investigations are part of the bloc’s wider efforts to curb the power of big technology companies.”
What exactly have these regulators accused Amazon of doing? According to these reports, Amazon has been accused of manipulating search results to advantage their private label products. This tactic is the main regulatory issue, and it results in retailers losing sales.
Amazon Responds to Regulatory Scrutiny
One of the ways Amazon may be seeking to ease these regulatory issues is by reducing its private label offerings, although the reason given by Amazon does not imply that they have taken any unfair advantage. They say the reduction is due to disappointing sales.
An article in seekingalpha.com reports that Amazon is reducing the number of items it sells under its own brands by well over half, and the company has discussed the possibility of exiting the private-label business entirely to alleviate regulatory pressure.
But according to globalbankingrates, “An Amazon spokesperson told the WSJ, however, that, ‘We never seriously considered closing our private label business and we continue to invest in this area, just as our many retail competitors have done for decades and continue to do today.’”
How many brands does Amazon have? According to foxbusiness.com,
“As of 2020, Amazon’s private-label business offered 45 house brands accounting for 243,000 products. The company has been criticized in recent years by lawmakers and others accusing Amazon of favoring its products at the expense of products sold by other vendors on its site. The private-label team reportedly was told to slash the list of items and not to reorder many of them.”
The Amazon side of the argument is that Antitrust legislation has unintended negative consequences for American consumers and small businesses. Amazon’s defense can be found HERE.
Amazon’s Decision May Benefit Retailers
Amazon has argued with regulators that it runs a fair marketplace, however, the company is reducing its private label offerings. The company has stated poor sales as the reason.
Regardless of whether Amazon has or has not been engaging in practices unfair to its customers, a reduction in private label products will likely benefit retailers of competitive products and possibly will ease some of the regulatory issues the company is facing.
Most shoppers make their choice from the offerings on the first page of an Amazon search. With Amazon’s private label significantly reduced, and Amazon having promised to treat retailers fairly, sellers may see improvement in their product placement on Amazon’s shelf.
Photo Credit: Christian Wiediger